Bill Gates to Wall Street: You earn too much. America responds: No duh.
Filed under: Technology, Economy, People
Bill Gates offered a revolutionary observation on Wednesday in Manhattan, during a discussion on philanthropy at the 92nd Street Y lecture hall. Wall Street pay, he says, is "often too high."Gates's wisdom on Wall Street's compensation problem seems obvious enough, but his perspective on the theory is a little more inventive than most. The pay crisis, Gates says, is largely the result of a 1993 law that capped executive salaries: "It was a bad milestone in controlling executive salaries when that $1 million cap went on."
This viewpoint argues that those salary limits encouraged business leaders to increase executive stock options, bonuses, and other payment methods that weren't restricted by the U.S. -- and that the very law designed to control CEO salaries actually sent them soaring.
There's something to be said for that. The 1993 law basically gave a huge cadre of math whizzes an incentive to get creative with compensation packages, and let the chips fall where they may. Still, there's a central flaw to Gates's argument, in that it shifts responsibility for financial shenanigans from Wall Street malefactors to shortsighted Washington bureaucrats -- claiming that it was Congress's failure to account for the psychology of greed that enabled Wall Street's ridiculous excesses.
It's a lot of fun to blame the cops for a crime, but there's another angle here that might make Gates less comfortable. The massive tax cuts of the last 40 years that funneled scads of money into Gates's pockets may have also laid the groundwork for Wall Street's massive money-grab. In the 1954 tax code, anyone making at least $200,000 -- $7.5 million today -- was taxed at a 91% rate, and corporations were taxed at 52%.
In 1964, the top individual rate was lowered to 70%, and further cuts over the next 40 years led to the current situation in which individual and corporate rates are both pegged at a meager 35%.
During this period, CEO wages have massively increased. In 1964, the average CEO made 24 times as much as his average employee; in 2007, that CEO made 275 times as much. While this jump owes a lot to factors including technological advances and outsourced industry, it's hard to ignore the influence of taxes.
CEOs in 1964 had a tax-based pay cap, after which the benefits of a big paycheck rapidly declined. Faced with paying a fortune in taxes, many companies apparently chose to reinvest their funds in lower-level employees, research and development, and other strategies for long-term growth. Over the past few years, however, greatly lowered tax rates have meant that executives -- and corporations -- get to keep a lot more money.
Given a choice between investing in their companies and investing in a house in the Hamptons, it's not hard to see why so many Wall Street tycoons have decided that big paychecks are the best place to put corporate profits.
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Reader Comments (Page 1 of 5)
11-12-2009 @ 2:56PM
Mike Zachaczewski said...
91% tax rate is insane no matter how much you make. It's not like those tax dollars are spent wisely anyway.
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11-12-2009 @ 7:41PM
Ron said...
Mike Zachaczewski said...
91% tax rate is insane no matter how much you make. It's not like those tax dollars are spent wisely anyway.
The tax rate today is 35%. 91% was in 1954. Still when a CEO is making 24 times what the slob at the bottom of the ladder is making then the CEO is way overpaid. Perhaps if the slob at the bottom made more, he would spend more and that would stimulate the ecomony. That is what people are missing. The rich don't stay rich by spending. They also don't have to worry about basic needs. But give the poor bastard at the bottom of the ladder a good wage and he will spend his money. He will buy a television, maybe vacation somewhere other then the local fishing hole. He will buy a nice home for him and his family. Trickle down does not work, but trickle up would.
11-12-2009 @ 7:48PM
Beth Grey said...
I agree with Bill Gates!!!
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11-12-2009 @ 4:16PM
Tom said...
Wall Street compensation and most CEO pay and perks are out of control and have been for years. Thousands of financial experts and many of those walking the floor of the NYSE could easily be replaced by far more use of technologies and costs to investors signficantly lowered.
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11-12-2009 @ 4:26PM
GUS CARPENTER said...
Bill Gates no longer has a right to say anything about pay or people in the United States
Gates went to Washington and lobbied for MORE visas for foreign workers so he could get lower price employees. At the same time he was doing that, thousands of qualified American workers were looking for jobs. He is not for America, if he is for it , it means he will make money at it.
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11-12-2009 @ 5:05PM
Kath said...
And, at the beginning of this year, when Microsoft is sitting on billions (yes, billions) of dollars in cash, Microsoft lays off 5,000 workers. How American is that? I wouldn't look to the greedy to offer their opinion on the greedy........
11-12-2009 @ 5:11PM
junior said...
Yes, but he also GIVES AWAY half of his income to various charities. When is the last time any of you contributed a dime?
11-12-2009 @ 7:48PM
william said...
Absolutely right.
11-12-2009 @ 4:28PM
bob said...
91% 52 % thats a reason not to work hard. Run a biz work 16 hours a day 6 to 7 days a week. That only tell people you better not make a lot of money or we will take it away from you.
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11-13-2009 @ 5:36AM
me said...
Bob you are a moron. Sorry but you are. People in the 50's did work hard with that tax rate. You also insinuate that the only people who work hard are business owners. The middle and low class workers work hard as well for far less money. Also it seems you are stating that 400,000 to 500,000 dollars isn't worth working - if so then go home and sit on your pretentious a** because there are plenty of people with great ideas who would work very hard for even 250,000/yr.
11-12-2009 @ 4:41PM
Tripp529 said...
Mr. Gates is correct. Executive pay has risen from approximately ten times workers pay to approximately 400 times workers pay since the 1970's. What else has happened during that time? Well, workers pay stagnated and actually declined. So, where did this additional compensation come from for these well paid executives? They stole it from their employees, who have watched their middle-class lifestyle go up in smoke.
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11-12-2009 @ 4:41PM
mornewz said...
Lloyd Blankfein. Meyer Lansky would be proud.
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11-12-2009 @ 4:55PM
peapers said...
Is the author of this piece is implying that tax rates of 52% to 91% would stop CEOs from getting large salaries? All this would do is force these people to become creative, yet again. These people would simply have their money funneled to foreign accounts while receiving meager salaries here in the states. Which would leave even less money in our banking system for loans that the rest of us need to buy cars, houses, etc. What everyone needs to do is start worrying about their own lives and not about the lives of a handful of people.
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11-12-2009 @ 9:22PM
anna said...
sorry, clicked on a wrong button. your comment is good
11-12-2009 @ 4:57PM
Don said...
It would be nice if they'd "invest" some of those profits in paying returns to shareholders who own their stock instead of their own pockets. It's getting harder and harder to find companies worth investing in. Who wants to own a company's stock if executives get all the profits and shareholders take all the risks? Executive compensation, not p/e ratio, is the first thing I look at before buying a stock.
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11-12-2009 @ 5:52PM
GUS CARPENTER said...
You are so right Don. The way stockholders are treated is disgraceful. Most stockholder meetings are held in a way that stockholders can not attend. If anyone is lucky enough to attend it is next to impossible to say anything they do not want to hear. Top management and the board of directors are in bed together. One covers for the other. They are both grossly overpaid and they set those income figures for each other without regard for the condition of the company. That money belongs to the stockholders. The theft of that money by overpayment should be regulated by the stockholders not the goverment. Like top management, the goverment is only interested in personal gain.
11-12-2009 @ 5:07PM
Walt said...
And Bill Gates is Who?
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11-13-2009 @ 12:58PM
whaaat? said...
who in hell is billy gates to say who should make what? what someone negotiates in their contract is none of his, or barrys business. good thing billy married a good looking wife to run his life.... typical techno nerd.... no brains except for computers.
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11-12-2009 @ 7:38PM
bill getas said...
the truth is hurting?
11-13-2009 @ 8:59AM
GrandPa909 said...
Bill G. is a lot of things Market raider, software pirate, etc.
And he's very good at it.
None of this changes the fact that his strangle hold on technology has created a land slide fore literally millions of people.
After all not just any one can keep their windows open for long.